Microeconomics Ch 8
Fixed costs
Are unavoidable; they do not vary with output in the short run.
Average total cost formula
AVC+ AFC
Explicit costs
Are tangible out-of-pocket expenses. Add every expense incurred to run the business
Average fixed cost (AFC)
Calculated by dividing total fixed cost by the output: AFC = TFC ÷ Q.
Economic profit
Calculated by subtracting both the explicit and the implicit costs of business from total revenue. Always less than accounting profit.
Accounting profit
Calculated by subtracting the explicit costs from total revenue. DOES NOT INCLUDE IMPLICIT
Variable costs
Change with the rate of output
Profit and losses
Determined by calculating the difference between expenses and revenues.
Average fixed cost formula
TFC ÷Q
Total Cost formula
TVC + TFC
Average variable cost formula
TVC ÷ Q
Total revenue
The amount a firm receives from the sale of the goods and services it produces.
Total cost
The amount a firm spends in order to produce the goods and services it produces.
Marginal cost (MC)
The increase in cost that occurs from producing additional output.
Implicit costs
The opportunity costs of doing business. Hard to calculate and easy to miss.
The efficient scale
The output level that minimizes the average total cost.
Average total cost (ATC)
The sum of average variable cost and average fixed cost.
Average variable cost (AVC)
The total variable cost divided by the output produced: AVC = TVC ÷ Q.
Marginal cost
ΔTVC ÷ ΔQ
